In the News

Trinity Health Chooses Ownership Instead of Outsourcing

It is common practice for hospitals to outsource esoteric clinical laboratory testing for reasons that are well-documented: access to highly trained personnel, specialized protocols and instrumentation, consistent quality, responsive turnaround, and economies of scale that lower costs. That low rumble you hear is the seismic shift of a new trend emerging; an operational model that chooses ownership over outsourcing.

Trinity Health, a Novi, Michigan based tax exempt organization that provides healthcare services to people in seven states at 44 owned or managed member facilities, is a pioneer in the ownership over outsourcing paradigm. According to Mike Slubowski, President, Hospitals and Health Networks, "We realized that the best way to control both the quality and the cost of esoteric testing was to stop being a customer and start being an owner." And that's exactly what they did.

In October 1997, Trinity Health hospitals and other member organizations joined together with Warde Medical Lab to form the not-for-profit Michigan Co-Tenancy Laboratory (MCL). The co-tenancy (think co-owner) has many benefits, but it was formed with a particular purpose in mind; to assure laboratory services of superior quality and to provide esoteric testing at cost to its co-tenants.

Dr. Jim Furlong, Chief of Pathology at Trinity Health's St. Joseph Mercy-Oakland hospital in Pontiac, Michigan explains, "I take personal and professional responsibility for our lab work. The MCL model is unique because my hospital co-owns a portion of the tech's time, the equipment and the reagents used to perform our tests. As a pathologist, quality and service are my primary concerns. Co-tenancy exceeds my expectations, but unlike outsourced reference testing, MCL acts as an extension of the hospital's own lab. The hospital has the opportunity to bill MCL's fees as it would for on-site laboratory testing."

Unlike customers who outsource to a reference lab, co-tenants have a voice in the governance of MCL and serve on its board. Craig Killingbeck, Executive Director of Capital Asset Management and Strategic Sourcing for the Supply Chain Division acts as Trinity Health's board representative at MCL. Acknowledging the demand for laboratory testing of unassailable quality and the drive to get the lowest possible cost, he sees the MCL model as a common sense solution. Killingbeck points out that since all hospitals have to send out certain tests, it's smart to let MCL pool the volume, especially for more expensive esoteric tests, perform
on-site what volume allows and release the remainder together to receive better pricing.

The chart reflects the collective laboratory savings of co-tenants based on the decreasing relative value unit (RVU) cost of lab testing.

"It's the norm," Killingbeck adds, "for MCL's reference lab testing cost per RVU to decrease by several per cent year after year. Believe me when I say, that's not the way the rest of the world works."

Slubowski emphasizes an unexpected benefit of co-tenancy. "For-profit labs can be sold as part of a merger, acquisition or spin-off. Suddenly, that great relationship you had is gone and you're working with people you don't know. As a not-for-profit, MCL isn't subject to market volatility. It offers continuity in service and stability in operation."

Hospitals will continue to do stat and routine in-house testing as before, but now there is a new operational model for outsourced esoteric testing. Killingbeck sums it up. "Co-tenancy makes us co-owners while requiring very little time for governance. Trinity Health and the other co-tenants knew what they wanted in a reference laboratory: superior quality, rapid turnaround, low cost per test, value creation for the co-owners and the ability to bill for services as if MCL were an extension of the hospital's own lab. We decided it was time to stop being customers and start being board members. Now we are."